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RiskMetrics Group Reports First Quarter 2008 Results
Earnings Highlights: The following GAAP results reflect the acquisition
of ISS on
-- First quarter revenues increased 36.0% on a GAAP basis to
$71.2 million, and 19.5% on a pro forma basis.
-- First quarter Adjusted EBITDA increased 53.9% on a GAAP basis to
$23.2 million, and 36.1% on a pro forma basis with an Adjusted EBITDA
margin of 32.6%.
-- Adjusted EPS (before amortization of intangibles, stock-based
compensation and one-time IPO costs) for the first quarter 2008 was
$0.13 up from $0.05 in first quarter 2007. GAAP EPS was $0.01 in both
the first quarter of 2008 and 2007.
"This quarter we experienced strong growth despite the volatility in the
global capital markets. Risk management continues to be a top priority among
institutions and corporations," said
All amounts (except share and per share information) are in thousands, unless indicated otherwise.
Selected Financial Information
Table A Three Months ended March 31, % Year over Year Comparison 2007 2008 Change
Revenues: Risk $27,319 $34,436 26.1% ISS 25,046 36,784 46.9% Total Revenues 52,365 71,220 36.0% Operating Cost and Expenses: Adjusted EBITDA expenses (1) 37,288 48,017 28.8% Other operating expenses (2) 6,569 11,152 69.8% Total operating costs and expenses 43,857 59,169 34.9%
Income from operations 8,508 12,051 41.6% Interest, dividend, investment and other loss, net (7,904) (11,477) 45.2% Income before income taxes 604 574 -5.0% Provision for income taxes 315 227 -27.9% Net income - GAAP $289 $347 19.9%
EPS (diluted) - GAAP $0.01 $0.01
Adjusted Net income (3) $2,523 $8,564 239.5%
Adjusted EPS (diluted) (3) $0.05 $0.13
Adjusted EBITDA (4) $15,077 $23,203 53.9%
Adjusted EBITDA margin 28.8% 32.6%
(1) Represents cost of revenues, research and development, selling and marketing and general and administrative expenses, excluding stock-based compensation and one time charges. Refer to tables I and J for a reconciliation to the comparable GAAP measure.
(2) Represents depreciation and amortization of property and equipment, amortization of intangible assets, loss on disposal of property and equipment, and stock- based compensation. Refer to tables I and J for a reconciliation to the comparable GAAP measure.
(3) Represents net income and EPS before amortization of intangible assets, stock-based compensation and one-time IPO costs. Refer to table D for a reconciliation to the comparable GAAP measure.
(4) Represents net income before interest expense interest income, income tax expense, depreciation, amortization, non-cash stock based compensation expense and extraordinary or non-recurring charges or expenses. Refer to table C for a reconciliation to the comparable GAAP measure.
First Quarter 2008 Revenues
Total revenues for the first quarter of 2008 were
Pro forma revenues increased 19.5% from
On a business segment level, first quarter Risk revenues were
ISS revenues were
Total Governance Services (mainly Proxy Research and Voting Services)
revenue of
"The balance of our business across our large and diversified client base
and across geographic regions continues to position us for growth despite
uncertainty in the global capital markets, Mr. Berman continued. "This
quarter we had a record
Adjusted EBITDA Expenses
Adjusted EBITDA expenses, which exclude depreciation and amortization of
property and equipment, amortization of intangible assets, and non-cash stock-
based compensation expense, interest, dividend and investment income (expense)
and income tax expense, increased 28.8% to
Compensation expense, which accounted for 69.0% of total Adjusted EBITDA
expenses, increased by 27.3% to
Non-compensation expenses increased to
Adjusted EBITDA expenses represented approximately 67.4% of total revenues for the first quarter, compared with 71.2% in the year-ago period.
Adjusted EBITDA
Consolidated Adjusted EBITDA increased 53.9% on a GAAP basis to
EBITDA, including a stock based compensation expense of
The Adjusted EBITDA margin increased to 32.6% in the first quarter of 2008, compared with 28.8% in the first quarter of 2007 and 30.2% for full year 2007, as revenues continued to grow at a higher rate than Adjusted EBITDA expenses.
On a segment level, the Risk business generated Adjusted EBITDA of
ISS generated Adjusted EBITDA of
"We continued to expand our Adjusted EBITDA margins in the first quarter
primarily driven by increased Risk margins," said
Other Operating Expenses and Income from Operations
Other operating expenses increased 69.8% to
Interest, Dividend, Investment and Other Income (Expense), Net.
Net interest, dividend, investment and other expense increased from
Net Income and EPS
Adjusted net income, as defined in Table D, increased to
GAAP net income and EPS was
Selected Operating Data
The Company believes that the supplemental consolidated financial
information is helpful to understanding the Company's overall financial
results.
As of and for Three Months
Table B Ended March 31,
Operating Data 2007 2008
Annualized Contract Value (1)
Risk $109,294 $142,505
% Growth - 30.4%
ISS (1) 94,359 125,058
% Growth - 32.5%
Annualized Contract Value 203,654 $267,564
% Growth - 31.4%
Recurring Revenue as a % of total revenue (2)
Risk 97.1% 99.0%
ISS 85.6% 84.6%
Recurring Revenue as a % of total revenue 90.9% 91.6%
Renewal Rate
Risk 87.6% 87.7%
ISS 89.0% 89.6%
Renewal Rate 88.2% 88.4%
Notes to Operating Data Table:
(1) We define annualized contract value ("ACV") as the aggregate value, on
an annualized basis, of all recurring subscription contracts in effect
on a reporting date. CFRA was acquired on August 1, 2007 with $15.9
million of ACV which is not included in ISS ACV as of March 31, 2007.
(2) We define recurring revenue as a percentage of total revenue as
revenue from subscription contracts divided by total revenue during
the applicable period.
Overall, renewal rates were 88.4% in the first quarter of 2008 as compared with 88.2% in the first quarter of 2007. Risk achieved a Q1 2008 renewal rate of 87.7% while ISS had a renewal rate of 89.6%, both slightly higher than in Q1 2007.
Recurring revenue as a percent of total revenue increased to 91.6% in Q1 2008 from 90.9% in Q1 2007. This increase was the result of the increase of Risk recurring revenues to 99.0% of total revenues in Q1 2008, as the Company continues to emphasize its subscription products. The percentage of recurring revenues for RMG and ISS was lower in the first quarter of 2008 than for the full year 2007 due to the seasonality of non-recurring Corporate Services revenues resulting in an over- weighting of those revenues in the first quarter of each fiscal year.
Annualized Contract Value increased 31.4% in Q1 2008 as compared to Q1
2007, with Risk increasing 30.4% (from
On a consolidated basis, the Company had
In Q1 2008 RiskMetrics continued to have success in growing our relationship with existing clients with approximately 60% of new ACV sales coming from existing clients.
Discussion of Cash Flow
As of
As in previous years, cash flow tends to be lower in the beginning of each year due to bonuses and commissions paid during this period and due to the seasonality of contract renewals and corresponding up-front payments, which are somewhat weighted in the second half of each year. As a result of contract renewals being weighted during the second half of the year and bonus payments in the beginning of the year, more cash flows from operations is generated during the second half of the year than the first half of the year.
Capital expenditures decreased to
Free Cash Flow (operating cash flow minus capital expenditures) for the
first quarter of 2008 decreased to negative
2008 Guidance
As of
Adjusted EBITDA is also expected to be in the upper half of our previous
Conference Call Information
The Company will hold a conference call to discuss results for the first
quarter of 2008 today at
US Toll free dial-in 800.901.5241
International dial-in 617.786.2963
Pass code 13539642
In addition, investors can access the conference call directly from the RiskMetrics Group Investor Relations Web Site at http://investor.riskmetrics.com.
RiskMetrics Group Media Contacts:
Cheryl Gustitus Sarah Cohn
301.556.0538 212.354.4643
cheryl.gustitus@riskmetrics.com sarah.cohn@riskmetrics.com
RiskMetrics Group Investor Relations Contact:
Dan Concannon
866-884-3450
ir@riskmetrics.com
About RiskMetrics Group
RiskMetrics Group is a leading provider of risk management and corporate
governance products and services to participants in the global financial
markets. By bringing transparency, expertise and access to the financial
markets, RiskMetrics Group helps investors better understand and manage the
risks associated with their financial holdings. Our solutions address a broad
spectrum of risk across our clients' financial assets. Headquartered in
Forward-Looking Statements
This release contains forward-looking statements. These statements relate to future events or to future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by the use of words such as "may," "could," "expect," "intend," "plan," "seek," "anticipate," "believe," "estimate," "predict," "potential," or "continue" or the negative of these terms or other comparable terminology. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond our control and that could materially affect actual results, levels of activity, performance, or achievements.
Other factors that could materially affect actual results, levels of
activity, performance or achievements can be found in the Company's
Notes Regarding the Use of Non-GAAP Financial Measures
RiskMetrics Group (the "Company") has provided certain non-GAAP financial
information as additional information for its operating results. These
measures are not in accordance with, or an alternative for, generally accepted
accounting principles in
Adjusted EBITDA
The table below sets forth a reconciliation of Adjusted EBITDA to net income on our historical results:
Three months ended Table C March 31, 2007 2008
Net income $289 $347 Interest, other expense, net 7,904 11,477 Income tax expense 315 227 Depreciation and amortization of property and equipment 1,584 2,115 Amortization of intangible assets 4,189 5,456 Stock-based compensation 796 3,361 Non-recurring expenses (a) - 198 Loss on disposal of property and equipment - 22 Adjusted EBITDA $15,077 $23,203
(a) Represents lease exit costs incurred from moving the Company's London operations.
Adjusted EBITDA, as defined in our credit facilities, represents net income (loss) before interest expense, interest income, income tax expense (benefit), depreciation and amortization of property and equipment, amortization of intangible assets, non-cash stock-based compensation expense and extraordinary or non-recurring charges or expenses. It is a material metric used by our lenders in evaluating compliance with the maximum consolidated leverage ratio covenant in our credit facilities. The maximum consolidated leverage ratio covenant, as defined in our credit facilities, represents the ratio of total indebtedness as compared to Adjusted EBITDA, and can not exceed a maximum ratio range which declines from 8.50 to 3.00 over the life of the credit facilities. Non-compliance with this covenant could result in us being required to immediately repay our outstanding indebtedness under our credit facilities. Adjusted EBITDA is also a metric used by management to measure operating performance and for planning, including preparation of annual budgets, analyzing investment decisions and evaluating profitability.
We also present Adjusted EBITDA as a supplemental performance measure because we believe that this measure provides our board of directors, management and investors with additional information to measure our performance, provide comparisons from period to period by excluding potential differences caused by variations in capital structure (affecting interest expense), tax position (such as the impact on periods of changes in effective tax rates or net operating losses), the age and book depreciation of fixed assets (affecting relative depreciation expense), acquisitions (affecting amortization expense) and compensation plans (affecting stock-based compensation expense).
Adjusted EBITDA is not a measurement of our financial performance under U.S. GAAP and should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with U.S. GAAP or as an alternative to cash flow from operating activities as a measure of our profitability or liquidity.
Adjusted EBITDA Expenses
Adjusted EBITDA expenses represent cost of revenues, research and development, selling and marketing and general administrative expenses, excluding stock-based compensation. Adjusted EBITDA expenses represent expenses which are classified as reductions to Adjusted EBITDA, as defined in our credit facilities. Adjusted EBITDA is also a metric used by management to measure operating performance and for planning, including preparation of annual budgets, analyzing investment decisions and evaluating profitability.
Other Operating Expenses
Other operating expenses represent stock-based compensation, depreciation and amortization of property and equipment, amortization of intangible assets and loss on disposal of property and equipment. Other operating expenses represent expen